Conexant: Focusing on What’s Important

Semiconductor companies are booming like never before (although the stock
prices are not — as is the case with all other high-tech companies
currently). Annual chip sales were a hefty $160 billion in 1999 and are
expected to rocket to $600 billion over the next three years.

One of the leaders is Conexant (CNXT).
It’s hard to believe that this company was once a sleepy modem manufacturer,
part of the Rockwell empire. Now, Conexant is targeting the fastest growing
segments of the worldwide communications marketplace. In fact, the company
is already the world’s largest independent company focused exclusively on
providing semiconductor solutions for communications electronics.

As for last year, revenues reached $1.4 billion, which was up 20 percent
from a year ago. Yes, the company is also profitable. Net earnings rose to
$12.9 million.

In just three years ago, Conexant has diversified into: network access,
wireless communications, digital infotainment, and personal imaging. Like
Cisco, Conexant has built its properties via savvy acquisitions.

For example, Conexant recently carved out a nice piece of the Bluetooth
market by acquiring Philsar, based in Canada. This marks Conexant’s fourth
major acquisition this year. Simply put, Bluetooth is a new standard for
wireless devices that allow for short range radio links between mobile
phones, mobile PCs and other mobile devices. The idea behind Bluetooth is to
make it much easier to connect devices, which is no easy feat. Over the next
two years, sales from Bluetooth products and devices are expected to
increase from $100 million to $1.3 billion.

But the most enticing part of the company is the Network Access Division.
This segment focuses on supplying high-speed integrated circuits for optical
communications. Maker Communications was their most recent addition. This
company is the leading provider of programmable, high-performance network
processors, software solutions and development tools. Maker has the broadest
portfolio of physical-layer communications products, including asynchronous
transfer mode (ATM), T1/E1 and T3/E3 carriers, optical networking
(SONET/SDH), digital subscriber line (DSL) and multi-service voice and data
access concentration.

When NASDAQ was more stable, Conexant stock price had hit a high of $132. At
these high valuations, the company was able to purchase a variety of strong
companies. Now, the stock is hovering at $54-7/16. Although, the market
capitalization is $11 billion, which is still enough to continue the
acquisitions strategy, especially with valuations of other companies being
much lower. If anything, the recent fall could be good news for leading
companies such as Conexant.


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